The figure was contained in an address presented on Thursday by the state finance commissioner, Rotimi Oyekan, during the ministerial press briefing held to commemorate the fourth anniversary of Governor Babatunde Fashola’s administration.
The breakdown of the debt profile showed that the state government has a multilateral debt loan of N62,426,899,007.40 (calculated using an exchange rate of N156.50) and domestic loans of N61,761,172,731.97.
Multilateral loans are debts owed by developing countries to the World Bank and the International Monetary Fund (IMF).
Mr Oyekan, in his speech, said such loans are “structured as long-term loans with a moratorium and at significantly lower rates than commercial loans”, and his presentation on the multilateral loans showed that $200million was obtained for the Lagos Metropolitan Development and Governance Project.
This loan which was described as “the largest World Bank direct funding for a sub-national government to date”, was obtained to “increase sustainable access to basic urban services through investments in critical infrastructure”.
The commissioner also said another $100million loan has been obtained from the French Development Agency for the expansion of the Ikorodu road into six-lanes including the BRT route.
Borrowing for the budget
Though, the state government has always maintained a policy of borrowing for the specific purpose of financing public projects, the third multilateral loan is a detour from this policy. For three consecutive years, a loan of up to $200million annually will be provided by the World Bank “to support the state’s budget directly rather than specific projects”.
“This is another indication of the level of confidence reposed in the State Government by the Multilateral Agency. It is worthy to note that the State has successfully secured the Federal Government’s guarantee and also obtained the approval of the National Assembly during the Public Hearing sessions of 6th December, 2010 and 2nd February, 2011 to incur external loans for its Developmental Policy Operations,” Mr Oyekan said, adding that the borrowings were necessitated by “huge infrastructural deficit which would require an estimated sum of $50 billion to address in the next few decades”.
He assured that the state deficit budget was nothing to worry about because less than 30 percent of the state’s total revenue “is used to manage its debt. It is not a crime to operate deficit budgeting. It is a reflection of present needs.”
Mr Oyekan’s statement is coming after the state’s commissioner for the Ministry of Economic Planning and Budget (MEPB), Ben Akabueze said last month that Lagos’s budget will run on deficit until 2013.
“There is no way we will run deficit budget in perpetuity,” he said, when asked whether there would ever be a year the state would not administer a deficit budget.
Borrow, but!
A Lagos-based economist, Henry Boyo, reacted to Mr Akabueze’s comments that State government be careful about its borrowings.
Mr Boyo agreed that “borrowing is not bad in itself”.
“If the borrowed fund will be used for infrastructure projects, it will be like an investment which will pay off later,” he said.
However, Mr Boyo warned that the cost of servicing the deficit is as important, if not more, than the purpose of borrowing.
Though, he commended the state government’s use of the bond market, he said the interest should be lower than 10 percent. However, the state government’s bond has a guaranteed 13 percent interest rate.
In addition, he said it is important that the state government find a way to reduce its recurrent expenditure, reduce the cost of hiring consultants, and develop other sources of income, if the dream of ending perpetual deficit budget is to be feasible.
“The state government seems fixated on personal income tax alone. But there are other means of revenue that could be developed,” he said. “For instance, the Land Use Charge alone, considering the number of houses in Lagos, can give the state more than income tax can generate.”
Mr Boyo however said he believed that “the state government is headed in the right direction to economic freedom but is only tied down by political strings”.
Making more
While putting the monthly revenue base of the State Government at N15billion, Mr Oyekan said the Lands Records Company (LRC), the company charged with the responsibilities of administering the collection of Land Use Charges, generated N3.02billion in 2010.
He added that 95 percent of properties in Lagos State have been valued and all properties will get the Land Use Charge bill in 2011.
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